Heavy Taxation on Non-business Land to Increase by 20%p from 2028... Possibility of Excluding Special Deduction for Long-term Holding

If the tax reform plan announced by the government in August 2026 passes the National Assembly of the Republic of Korea, the tax burden on non-business land is expected to increase significantly starting in 2028. According to the video, if the amendment is applied, the heavy taxation rate for capital gains tax on non-business land will double from the current 10%p to 20%p, and the existing special deduction for long-term holding may also be excluded.

Criteria for Determining Non-business Land and Projected Changes in Tax Amount

Unlike housing, land is not granted tax exemption benefits simply because the holding period is long. If capital gains occur, capital gains tax must be paid in principle, and depending on the holding period, basic tax rates of 50% for less than 1 year, 40% for 1 year or more but less than 2 years, and 6% to 45% for 2 years or more are applied. The key is whether the land in question is 'business use' or 'non-business use'.

For non-business land, an additional 10%p is added to the basic tax rate. If it falls into the maximum tax rate bracket of 45%, a total rate of 60.5% will be borne including local income tax. The video explained the changes when the amendment is applied in 2028 with numerical values. In the case of land with a capital gain of 500 million won held for more than 15 years, currently, a 30% special deduction for long-term holding is applied, resulting in about 149 million won in capital gains tax, but if the heavy taxation rate rises to 20%p and the deduction is excluded according to the 2028 amendment, the tax amount increases to about 274 million won. In this case, a simple comparison shows a tax difference of about 125 million won. However, this is based on the amendment announced for legislation as of September 2026, and the final passage must be monitored.

Whether land is non-business is not determined solely by its current usage status. It is important whether it was used for business for a certain period or more during the entire holding period. For example, in the case of land held for 5 years, it can be recognized as business use land if it was used for business for 3 years or more during the entire period, or if it was used for business for 2 years or more out of the 3 years as of the date of transfer. Additionally, there are provisions where land subject to development restrictions, building restrictions according to laws, vacant land for building (2 years before commencement and the construction period), and land within 2 years after closing a business can exceptionally be recognized as business use land.

8-Year Self-Farming Deduction Requirements and How to Utilize Farmland Substitution

In the case of farmland, it is important to meet the '8-year self-farming deduction' requirements. This does not simply mean holding it for 8 years, but both the residence (living in the area) and self-farming (direct cultivation) requirements must be met. The residence must be in the same city, county, or district as the farmland, or in an adjacent city, county, or district, or within a straight-line distance of 30km. Also, one must personally farm, and it is difficult to be recognized if one entrusts the farming to others or if a family member farms instead. Income standards also exist; if the sum of the total salary and business income for the relevant taxable period exceeds 37 million won, it is excluded from the self-farming period.

If the 8-year self-farming requirement cannot be met, the 'Farmland Substitution' system can be considered. One must sell farmland that has been directly self-farmed for at least 4 years and purchase new farmland within 1 year from the date of transfer to farm again. The new farmland must be at least two-thirds of the existing farmland area or more than half of the transaction value. If the combined self-farming period of the existing farmland and the new farmland reaches 8 years, capital gains tax can be deducted according to the post-management regulations.

Acquisition and Tax Treatment of Inherited Farmland

Under the Farmland Act, an heir can exceptionally acquire farmland even if they do not farm. However, the area that an heir who does not farm can continue to hold is limited to 10,000㎡ (approximately 3,000 pyeong). If one wishes to hold more than this, methods such as formal lease entrustment contracts should be considered. In terms of capital gains tax, if one inherits land that parents farmed for more than 8 years, the heir can have the parents' self-farming period added if the heir farms for more than 1 year after the inheritance. Also, if the land is transferred within 3 years after inheritance, there is a provision where the 8-year self-farming deduction can be applied by recognizing the parents' self-farming period even if the heir did not farm.